HMRC has published details of the number of investigations that it is currently conducting in connection with the corporate criminal offences of failure to prevent the facilitation of tax evasion.
The figures show that as of 1 January 2023:
- HMRC is conducting nine investigations into the corporate criminal offence with no charging decisions yet being made.
- A further 26 live opportunities are currently under review with 77 opportunities having been rejected.
HMRC also revealed that these live matters span 11 separate business sectors and straddle all of HMRC's customer groups. The business sectors involved include recruitment services, accountancy, transport and IT.
The corporate offences relating to the failure to prevent the facilitation of tax evasion came into force in 2017 under the Criminal Finances Act, but, to date, there have been no prosecutions for either of the corporate criminal offences. The Act made it an offence for anyone acting for or on behalf of a company to facilitate tax evasion, unless the company can show that it had put in place reasonable prevention procedures – this includes putting in places appropriate policies and other systems and controls.
The Act followed the introduction of the Bribery Act 2010, which introduced a very similar offence for companies that fail to prevent bribery. Further legislative measures have since been imposed to address other discrete risks that may attach to a company's supply chain or management, including the introduction in the Environment Act 2021 of a requirement on businesses that use 'forest risk commodities' to undertake due diligence to ensure they aren't dealing in the product of deforestation.
In the past month, the Government has announced (under pressure from its backbenchers) that it intends to incorporate further new offences modelled on the Bribery Act 2010 and Criminal Finances Act 2017 into the Economic Crime & Corporate Transparency Bill currently in Parliament. The new offences proposed are to include the failure to prevent fraud, false accounting and money laundering by persons acting for or on behalf of a company. This would represent the most wide reaching and significant reform of corporate criminal liability and governance not seen since the introduction of the Bribery Act 2010.
The above legislative developments present a sharp legal liability for companies, but there is also an increasing focus to get ahead of the statutory requirements for supply chains and put in place preventative measures to address wider risks – including environmental harms in supply chains, human rights abuses in supply chains, or other workers' rights abuses. This shift is partly to mitigate possible reputational damage – as illustrated by recent reporting of sexual exploitation on tea farms that supply some of the UK's most popular brands - but it also reflects that such measures reflect the likely direction of legislative travel.
For example, Germany introduced a Supply Chain Act in January which requires companies to undertake due diligence measures to safeguard human rights throughout their supply chain. The European Commission has recently proposed similar measures through the introduction of a Directive, which would have implications for all EU Member States. It seems inevitable that the UK will follow in one way or another.
Governance and remediation
The law recognises that no measures will be perfect and that is reflected in the legislation governing this area. However, in the event that issues do arise, then consideration should be given to conducting an internal investigation to bottom out the risk and remedial steps appropriate. A recent High Court decision on supply chain liabilities means that such an investigation may be covered by privilege where external lawyers are instructed.The best answer to managing these risks – both legal and reputational – remains the imposition of a robust and effective compliance programme, led by policies that address the specific risks that attach to each business. The level of intervention necessary depends on the risks faced by particular business, but may range from managing third party relationships through contract, due diligence and audits, to something more straightforward.
In September 2022, Mishcon de Reya co-edited and authored various chapters of the First Edition of the Global Investigations Review Guide to Compliance, which sets out compliance risks and best practice, including a specific chapter addressing supply chain and ESG risks.